Cold storage, a niche subsector of the industrial real estate market, is heating up.
Driven by — what else — e-commerce and the pandemic, the cold-storage market was valued at $89 billion in 2018 and is projected to reach $218 billion by 2026, growing at a compound annual rate of 11.7% between 2019 to 2026, according to research by commercial real estate firm Avison Young USA Inc.
Food production and supply-chain needs, including the growth of online grocery shopping, are bolstering the space, but so is the booming life sciences market. A lot of biopharmaceutical products, including the Covid-19 vaccines, need to be stored in extremely cold environments.
Much of the nation’s cold-storage supply is outdated, having been built 34 years ago, on average, according to CBRE Group Inc. data. But building new refrigerated warehouse space is expensive, and hasn’t been done on a speculative basis on a meaningful scale until recently. Retrofits of dry warehouse space into cold storage are occurring, but the sector has specific requirements that mean not all buildings will work for a conversion.
Cold Summit Development, based in Ketchum, Idaho, is one of only a few real estate developers exclusively focused on cold storage. The biggest owners of cold-storage real estate — among them, Lineage Logistics LLC, AmeriCold Logistics LLC, United States Cold Storage Inc. and NewCold Advanced Cold Logistics — aren’t even exclusively in the space.
“With growing demand, driven largely by shifts in food preferences and e-commerce, cold storage has emerged as a very lucrative property type”, said Jason Fincher, vice president of strategy and logistics at Cold Summit Development LLC. “There’s so much demand in the market. There are a lot of aging buildings that need to be rebuilt or retrofitted. There’s a lot of work for several years.”
Some of Cold Summit’s current projects include multi-tenant speculative facilities in Dallas and Glendale, Arizona. It recently struck an agreement with North Carolina Ports to build a 280,000-square-foot multi-suite cold-storage facility in Wilmington, on a property owned by the port. North Carolina Ports says it’s seen more than 250% growth in its refrigerated import and export volumes in the past five years.
“Cold Summit is primarily targeting Southern markets that are underserved and growing, as well as metros near ports in the Southeast,” Fincher said, “Port markets have been investing in their cold-chain capabilities, including facilities, in recent years — responding, in part, to changes in global trade routes.”
But cold storage needs to fit into a larger supply chain, and a developer’s placement and strategy has to acknowledge that, Fincher added. That typically means being near food-production areas, because of volume requirements, as well as to a large transportation node that requires some kind of handling — rail to truck or ship to truck, for example.
Even though it has momentum, cold storage still only accounts for 1.1% of the total U.S. industrial market, according to Avison Young. Among all cold-storage inventory, 17.2% is in the New York, Los Angeles, Philadelphia, Chicago and Dallas metro areas. There’s about 251 million square feet of cold-storage space today.
The real estate firm predicts digital and autonomous advancements will be the next frontier for refrigerated warehouse space, in addition to “micro-fulfillment” cold-chain needs.
“As cold-storage product continues to age, as there’s demand for more efficient, higher-technological uses, then you could easily see some new development in some of those other markets,” said Aaron Ahlburn, practice lead for logistics and industrial data at Avison Young.
Avison Young found no refrigerated warehouse space is being developed in the Mid-Atlantic region, an area it says may already be underserved. Investors are also becoming increasingly more attracted to the space. Ahlburn said there’s always been appetite but it’s moved from being a niche asset into more mainstream.
Cold storage sales grew 22.9% last year, according to a Colliers International report, citing Real Capital Analytics Inc. data. Total sales volume was $3.3 billion in 2020, the highest year on record.
“Cold Summit is also seeing a ton of investor interest,” Fincher said. “This is a really key time, where we have demand not just from the tenant side but from the investor side. There’s just not enough quality projects coming to market fast enough.”